BOBB Part Three

When Bobb came to Detroit, he pledged to work with the elected school Board over their shared responsibilities, as the emergency financial manager law, PA 72 of 1990, requires. Governor Granholm also made such pledges. Bobb wrote a letter to the Board of Education President, Dr. Carla Scott, reaffirming such cooperation in April 2, 2009, saying that “I fully appreciate and understandyour role and function as President and that of your Board of Education colleagues, based particularly on my own service as an elected Board member and Board President.”

He also wrote that “there is a pressing need for the community at-large to be involved in creating a Master Education Plan for the 21st Century Teaching and Learning, a sentiment that never would be acted on in the following months.

But in the addendum to the letter Bobb negated the community and Board cooperation that was promised in the body of the letter. State Superintendent of Instruction Michael Flanagan told this writer and others in early 2010 that PA72 did not give Bobb academic power, adding that if that had been the intention of the Legislature, it would have been clearly stated in the law. It was the Governor pushing that issue, he said. When a judge agreed with that interpretation of the law, Flanagan urged Bobb to not appeal the decision.

After Bobb came to Detroit, he fired central staff and brought in mostly out of state contractors to run the district, contractors with no previous connection to DPS operations.

This is a short list of some of those contractors:

William V. Roberti

Roberti is a “special Advisor” to Bobb and a long time employee of Alvarez & Marsal. The company had a four month contract, from June to October, for $500,000 that included Roberti and several other A & M staff, Roberti and his company continue to operate at DPS. They have been paid over $2.6 million, however.

Roberti was the lead person sent in to dismantle New Orleans Public Schools after Katrina creating a charter school network in its place. Prior to Katrina he was the $425 an hour (plus expenses) contract Superintendent of the St. Louis Public Schools through Nvarcz & Marsal. The Missouri education departrnent concluded in 2004 that the college placement rate dropped and the dropout rate had risen under Roberti’s policies, resulting in over a 20 point drop in the State of Missouri’s evaluation of the District under Roberti.

Prior to his St. Louis job, Roberti had been the CEO of Brooks Brothers, the men’s clothing

retailer.

Barbara Byrd-Bennett

She was hired on a contract basis as the Chief Academic and Accountability Officer. Pay was set at $16,828 per month, plus $1,683 monthly for expenses for a total of $18,51I per month. For the nine month contract that expired February 28,2010, she was to be paid $160,000, equivalent to over $213,000 per year. Her new contract has not been made public. The Six Month Report On Expenditures, Contracts, Loans and Employment Actions dated October 14,20lO ( hereafter Six Month Report) sent to the Legislature shows a compensation rate of just over $260,000 per year, which was the salary of the DPS Superintendent under the elected Board. Despite this high pay level, she works only part time for DPS.

Byrd-Bennett was the CEO of Cleveland Public Schools for seven years, hired by the Mayor

after a quick and intense campaign was conducted through the media to convince the state that Cleveland voters could not be trusted to elect a school board and power was given to the Mayor. Cleveland business groups set up a fund to embellish the compensation to the CEO, funds which caused official scrutiny and public criticism for her lavish spending on meals, travel and lodging for herself. She was also criticized for having her son-in-law on the District payroll, but he was on the payroll before he became her son-in-law.

The same justification cannot be made, however, for her son-in-law, Edmenson Suggs, an

attorney who lives in Ohio, who was given a $71,500 DPS contract for an eight month period, equal to an annual rate of $107,250 for analyzing the athletic program. The contract was signed by a deputy of Byrd-Bennett. The pay rate for her son-in-law is equivalent to the amount paid to experienced DPS Assistant Superintendents who supervise daily school operations. Bobb listed Suggs’ name as a contributor to his so-called academic plan, but no work product has been placed on the DPS website. The contract was from July 7, 2009 to March 2,2010.

A March 30, 2010 Freedom of Information request for this report has not produced the report as of February 10,2011. Knowledgeable sources at DPS say that he was virtually unseen in DPS. In order for Bobb and Byrd-Bennett to show that this was not a no-work, no-show award to a family member, a substantive work product needs to be produced that was provably created within the contract deadline.

After leaving the Cleveland job, Byrd-Bennett became “superintendent-in-Residence” at Houghton-Mifflin publishers. Within a few months of settling in at DPS, Bobb and Byrd Bennett made the largest book purchase in US history with a $40 million contract with Houghton-Mifflin.

Byrd-Bennett was also Executive Officer of the Broad-funded New Leaders for New Schools in Washington, D.C. while she was working at full time pay for DPS.

Byrd-Bennett’s tenure in Cleveland did not produce marked academic improvements, according to a number of commentators. The 2009 NAEP math scores, widely used to discredit DPS education, showed in the math scores that Cleveland was the only urban district to go backwards since 2007 in both 4th and 8th grades.

Last year Bobb required employees and vendors to complete disclosure statements that reported any employment or business relationships outside DPS. Such information is supposed to ensure that conflicts of interest are avoided. In response to an FOIA request for her disclosure statement, Byrd-Bennett’s office stated that she did not complete the report, even though Bobb did. Well .placed DPS sources say that she completed the form but is declining to release it.

Annette Knox

Knox was looking for work for a long time before her friend Barbara Byrd-Bennett hired her in Detroit. Both were associated with New Leaders for New Schools in Washington, D.C.

Prospective employers turned her down after background checks went back to her work as

Superintendent in Camden, New Jersey. There she resigned in 2006 under pressure from a

criminal investigation that focused on rigged scores for statewide exams and for unauthorized bonuses. A court-ordered audit also found irregular spending problems, including ongoing paychecks for 10 dead former employees. In total, $13 million in “questionable expenses” were identified in the audit of the district with only 18,000 students.

The rigged test scores investigation focused on three schools where test results were near perfect in a distict that was highly challenged by low testing results in previous years. One principal told the state that he was pressured to rig scores by a “high administration official” and the rigged results partly justified Knox taking $17,690 in bonuses, payments which wore not approved by the Camden school board. After the results were public and before the rigging was known, Knox held a $15,000 gala celebration of the District’s phony results.

Knox chose to resign and applied for jobs outside New Jersey, but was unsuccessful in being selected. When Byrd-Bennett brought her to Detroit, Bobb awarded her a contract for $110,000 for an eight month perio4 a yearly rate of $165,000. Her duties were to serve as an “executive coach” and other academic duties under Barbara Byrd-Bennett. Her new contract has not been made public. She now holds the title of Assistant Superintendent.

Tracy Martin and Sherry Ulery

Both worked for Barbara Byrd-Bennett in Cleveland, went to work together in the Washington, D.C. schools when Bobb was board president, were separated from employment by Michelle Rhee after a short tenure in D.C. and reunited with Bobb and Byrd-Bennett in Detroit after a period of unemployment. Both were given Deputy Chief of Academic Affairs titles and both were given nine month contracts at $15,888 per month, a yearly equivalent of over $190,000 a year. Both are alleged to work part time for many weeks of the year. Their new contracts have not been made public.

Kathy Areilino

Another Barbara Byrd-Bennett associate from the Cleveland schools, hired as a consultant to Byrd-Bennett at a monthly rate of $11,000 monthly, equal to ayeady rate of $132,000, considerably higher than DPS assistant superintendents were receiving at the time of her hire.

Leaura N.Materassi

Another Barbara Byrd-Bennett associate from the Cleveland schools, hired as an “executive coach” for $13,750 a month, or a $165,000 yearly rate. She has worked with Byrd-Bennett for more than 20 years in New York as well as Cleveland. She was also a Broad program participant

Gloriane Allen

Another Barbara Byrd-Bennett associate from the Cleveland schools who has become an Assistant Superintendent over the English Arts curriculum. She was hired at a rate of $132,000 a year, but her current rate is unknown. No contract for her has been published.

Rosemarv Herpel

Another Barbara Byrd-Bennett associate from the Cleveland schools who was hired June 1, 2009 as a consultant to develop a leadership academy for principals at DPS to replace the one that was shut down. She was paid at the rate of $132,000 a year. No renewal contract for her has been published nor is her name on the list of vendors that Bobb was required to supply to the Legislature in his Six Month Report of Expenditures, Contracts, Loans and Employment Actions. No leadership academy was ever implemented.

Barbara Quigman

Another Barbara Byrd-Bennett associate and friend who sources say was brought to DPS as a consultant but there is no reported contract for her, nor is she listed in the Six Month Report to the Legislature cited above.

Debra Linn Talley

Another friend of Barbara Byrd-Bennett who was brought from Cleveland to monitor the intake of books from the $40 millionHarcourt purchase that Barbara Byrd Bennett arranged. Although she is listed as a contractor, her vouchers are not reported in the Six Month Report. She was in charge of the Office of Equal Opportunity in Cleveland until she was demoted by the Mayor and resigned in 2009, according to the Cleveland Plain Dealer of March 23,2009.

Kevin Clinton

Clinton was a former official in the Washington, D.C. school system that Bobb brought to Detroit not as a contractor, but as a DPS staff administrator over the state and federal grants office. He was recently moved into Bobb’s executive office. Clinton was given a pay rate of $145,000 a year, $30,000 a year higher than the highest paid Assistant Superintendent. His good standing with Bobb may also stem from the fact that he was his $5,000 per month deputy campaign manager when Bobb ran for school board in D.C.

Angela Joyner

Joyner has worked under Bobb in Oakland and in Washington, D.C. She is currently the Deputy Chief Financial Officer, a DPS staff position, paid $125,000 a ycar. According to knowledgeable sources at DPS, Joyner knows practically nothing about school budgets and has to ask for help on basic budget matters. She was hired in Buffalo in a senior finance position and was not retained after four months. She left DPS in early February but is on the DPS payroll until March. Her departure was not announced by DPS.

In addition to these individuals, questions have been raised by Bobb’s selection of:

Public Financial Management Inc.

This Philadelphia-based company once employed Bobb as Director of Strategic Consulting. Even after he signed a $972,000 DPS contract with them, the Detroit Free Press reported that he was listed as an employee and still had an active telephone at the company. Their contract was to provide budget development and financial reporting services to the Michigan Department of Education on behalf of DPS. Bobb also personally selected this firm to provide the financial services for the bond program that he and the Governor created. That contract has not been made public.

Bobb’s Financial Failure

When Bobb came to Detoit in March, 2009, the district had a negative fund balance from the previous 2008 fiscal year of over $139 million. He was expected to stem the red ink and begin to slowly reverse the deficit conditions at the District. When the fiscal year 2009 data was reported, however, the new fund balance was a negative $219 million.

Since Bobb had been at the district the last four of those months of FY 2009, he was not criticized for the deficit leap. He had increased spending in those four months with millions of dollars in consultant contracts, but was claiming that those expenditures would produce a positive balance in the next fiscal year, FY 2010.

When Bobb reported his budget in June 2009 for FY 2010, which would begin July l, 2009 and end June 30, 2010, he said that he would have a surplus in that fiscal year of $17 million. But he continued to add contractors and consultants to his spending activity to such an extent that the Detroit Free Press reported in October 2009 that Bobb had $40 million in consultant spending in place.

Generally, Bobb’s spending practices were not given much attention. In May 2009 he and Granholm had decided that they would plan for a construction bond program. Bobb was also making headlines with unfounded statements of “ghost employees” and other false allegations of abuse. He was riding high and few noticed that he had posted his five priorities and the last priority was developing a financial plan. A state legislator, in a hearing on January 21,2010, told him that he should reverse his priorities and put finances first, since that is what he was hired to do. Bobb did not respond.

In later 2009 he began asserting that the FY 2009 deficit of $219 millionwas really $305.8 million. Also though this was stated as fact, it was never given a documented foundation. Further, the 2009 Comprehensive Annual Financial Report (CAFR) created by outside auditors that established the deficit at$219 million was never recalculated. The 2010 CAFR reported that the 2009 deficit was still determined to be $219 million and Bobb nevor proved to the outside auditors that the figure should be recalculated.

This matter becomes relevant because Bobb has made several versions of history around this issue. In 2010 he asserted that the real deficit when he arrived was about $305 mitlion but his quick and prudent actions cut $86 million in the last four months of the fiscal year and brought the actual deficit down to $219 million. The only problem with this story is that he did not make any major spending cuts in his first four months. He made announcements that would go into effect for the next fiscal year but not reductions that would come anywhere near $86 million in the 2009 fiscal year ending June 30,2009.

After his FY 2010 deficit ballooned by $108 million to $327 million (the general fund portion of the deficit in FY 2010 was over $112 million), Bobb began saying that the actual deficit for FY 2009 was $305 million, period. That meant that he was no longer making his earlier assertion that he cut $86 million and brought it down to $219 million in 2009. Again, there was no evidentiary foundation for either claim.

The advantage of asserting the higher 2009 deficit was that it made it appear that the deficit went from $305 million in 2009 to $327 million in 2010, an increase of 522 million. That looks much better than the $108 million that the outside auditors asserted that is still the official number to date.

Interviews conducted with DPS staff and former staff and Bobb’s staff over the last year, as well as published financial data inform the above discussion. DPS staff that know what is going on in the finance area of the District see Bobb’s deficit failure as driven not just by the school finance realities but by bringing in many vendors and putting people in positions that were incapable of functioning in the positions they were in.

Additionally, companies that were brought in from out of state, such as TCBA and PFM (see earlier discussion) due to Bobb’s personal connections to them, did not understand Michigan school finance, so they had a steep learning curve.

Another factor in the deficit was Bobb’s hiring of friends and generous compensation to favored individuals as well as pay raises and the awarding of higher titles to people who continue to do the same work. He expanded the number of Assistant Superintendents from three under the elected Board to ten, adding about one million dollars to the payroll.

Bobb has also used federal funds for multimillion-dollar projects, such as the awarding of $20

million to four out of state vendors to supposedly manage 17 high schools in 2009. The vendors are in varying degrees present in the buildings but the DPS staff continue to run the schools. The stimulus dollars given to these companies have not stimulated any growth activity and appear more as a waste of money that could have been used for a vital purpose.

Unreported Financing

Bobb has been conducting short term loans that have not been open to the public that is paying for them, even though these loans cost taxpayers millions of dollars. IB 4214 and SB 153 propose that these loans be conducted without public notice, even though the Michigan Treasury is a party to the loan process. This means that activities of government that place a direct cost on taxpayers and critically affect local government operations would not be reported to the public.

Last October Bobb had $445 million in short term financing loans that were not reported to the public. The loans resulted in reductions of payments to DPS of $45 million per month until August 2011, when these loans will be repaid.

When Bobb borrowed $230,000,000 on August 18, 2009 for a one year, short term loan, the interest rate was 9.5 percent, according to the Six Month Report. That means DPS paid $21,850,000 in interest for the loan, money that could pay for a lot of educational capacity. All that should be public.

Afterwards he borrowed$256,235,000 at 4.9 percent, costing $12.6 million, and $188,730,000 at

3.875 percent, costing $7.3 million. Those interest costs together total $41,750,000, another factor in the DPS deficit. While these types of loans are used to some degree by school districts to cover uneven state aid payment schedules, the amount and costs bear examination. If the

current legislation passes, it will be harder for citizens to know this data.

Bobb’s Deficit Justifications

In trying to explain why DPS has a deficit for 2011, the District has offered the following

explanations:

A property tax charge-back of $7 million from the Wayne County Treasurerdue to the bankruptcy of Greektown Casino and General Motors. This explanation suggests that the charge-back was sudden and unavoidable. In fact, charge-backs began in FY 2009 due to the declining tax revenues due to the acceleration of foreclosures and property abandonment. This continued in FY 2010. Property tax officials warned millage-funded institutions for several years to anticipate a charge-back and prudent financial offrcers budgeted accordingly.

Increased expenses of over $23 million due to recalling employees due to be laid off, This explanation means that they budgeted payroll reductions of essential employees that they could not do without. This speaks to a confused budget process and lack of competencies.

Unrealized labor savings of $72.2 million. When Bobb signed each union contract, he praised the concessions. The custodians’ union, for instance, gave up wage, health care concessions and work rule changes that lowered payroll costs. The teachers union made many concessions and also agreed to a loan program whereby each teacher forwarded to DPS $10,000 per year to be banked by the District until the teacher retires. This resulted in over $40 million that Bobb used to help his cash flow problems. Every other Union gave concessions that Bobb was signatory to, meaning that the concessions were within the range of the District’s savings goals.

Cancelled school closings cost $9.1 million. The problem with this claim is that closing schools does not save money in the year of the closing due to costs of demobilizing the building and securing the property. Further, there is evidence that whatever savings from staff and utility costs are realized are more than offset by the loss of student enrollment. When CEO Ken Burnley closed a large number of schools in 2004,the enrollment rate dropped dramatically.

When the elected Board of Education did an even larger closing program in 2007, another precipitous decline occurred. An academically successful elementary school testified last year that when they were relocated, they lost about 250 students of their 300 students to other school systems. So the hundrcds of thousands of dollars saved by closing their building caused the District to lose $1.9 million in revenue.

memo to Bobb for a budget amendment on February 17, 2010 stating that the prior year’s deficit FY 2009 was $219 million and the projected budget deficit for FY 2010 was $l13 million, which, she said, was “not a cause for concern because it is a result of decisions that were made in the best interests of students.” The document showed no reduction in property tax revenues. In fact, the FY 2010 revenues rose $160.8 million due to stimulus dollars.

Another Explanation for the Deficit

Bobb did not put forward the obvious factors that contributed to the deficit when the size of the imbalance was reported last year. This report argues that the deficit was greatly exacerbated by:

The hiring of dozens of contractors and vendors, not all of whom have been made public or even reported to the state, as required by law. This includes Bobb himself, whose compensation package is $505,000, of which $360,000 comes from the District general fund. His total contractual pay is nearly three times that of the Governor, which in turn is the third highest Governor’s pay in the U.S. It also exceeds the base salary of the president of the United States. Bobb’s pay is emblematic of the compensation mentality among the EFM team at DPS.

The expansion of positions, promotions and job title inflation of favored staff.

The huge unreported and misreported debt service from Bobb’s hidden borowing activity.

Paying employees who are not in budgeted positions. Bobb has hundreds of people who are

not in the official budgeq which makes his budget numbers look better to Lansing, but show

in the bottom line at CAFR time.

Incompetent budget workers brought in through relationships.

2011 Budget

Bobb is operating on a current budget that he projects will be perfectly balanced on June 30, 2011. It will not be balanced. All of the faults described above are still in place. The budget was not balanced from the first dav of the fiscal year.

Bobb reported various numbers ranging from $21 million to $66 million in debt service costs for the 201I budget.In his online budget he projects a debt service of $21,850,000. But when he presented this budget to the public on June 30, 2010, he stated that the debt service would be $66 million. He declined to discuss the debt service numbers when he made the public presentation of budget only six hours before it went into effect, in violation of state law. He also would not answer questions on the size and cost of the short term loans to DPS.

Bobb has taken one dramatic step to improve the 2011 bottom line. He announced in early February that he was outsourcing 823 positions (699 were filled) effective February 21. Hence over four months of payroll for these employees will disappear, reducing payroll costs for the District. Although this would normally be offset by vendor costs, Bobb has an agreement with the vendor to float those costs for the rest of the fiscal year. While this may be a side note when the 2011 CAFR is reported, the budget actuals will work in Bobb’s favor. With the costs passed to the FY 2012 budget will also be 66 new employees that the vendor will be adding to the workforce.

The next EFM will have to deal with all of those costs that make Bobb look good for the moment.